Condo/TICs hit their all-time highs about a year later than homes did — in July 2008.  But they’ve fallen from their highs almost exactly as much as homes have.  Condos/TICs were down 17%, just one percent better than single family homes.

For those who prefer their data on a per square foot basis, the picture is pretty much the same.  The all-time high was $711 — reached in November 2008 and the price per square foot stood at $592 at year’s end, also a drop of 17%.

While condos/TICs ended the year at the same point, the pattern has not been the same. Condos/TICs have been stuck near the bottom of their 2009 range after bouncing up in the first quarter. Homes, on the other hand, appear to have bounced up and stayed up.

What’s in store for 2010 remains anybody’s guess, but on the streets it certainly feels like spring is in the air.  There are more listings coming onto the market and more people looking at them.  Will that translate into sales and higher prices?  That’ll depend on macro-economic trends I’ve discussed elsewhere, but one thing’s pretty clear:  interest rates are heading higher, as evidenced by the Fed’s recent increase in the discount rate. If the economy continues to strengthen, that trend will continue.  And, for many people, that will result in less buying power and reduced affordability.

The View From Space

The View from Space – 2010

Ken Rosen is a smart guy.  He’s the co-chair of the Fisher Center of Real Estate and Urban Economics at the Haas School of Business at UC Berkeley and the investment adviser of choice to some of the biggest players in real estate, from banks to insurance companies to REITS. Ken might not be able to appraise your house, but he could tell you how each sector of the real estate economy has fared anywhere in the country, and probably in many parts of the world.

Once or twice a year I spend the day in a windowless hotel conference room listening to Ken and some of the biggest heads in the real estate biz expounding on the state of real estate. These guys (and they are mostly guys) look at real estate through the lens of global macro-economics and finances.  Want to know where interest rates are going?  They study yield curves on T-Bills and monetary policy in the capitals of Europe.  This is “the view from space.”

I reported on Ken’s predictions from November of 2008 here. (Remember, we were already in deep doo-doo, though things got worse through the first quarter of 2009.)  Before moving into his predictions for 2010 and beyond, I thought it would be useful to see how well he did on on his forecasts for 2009:

The Ken Rosen Scorecard for 2009

• Chance of a deep recession: 70%. Bingo.
• S&P 500 at year-end under a deep recession: 850. Actual:  1115.   Woops (but who said the market was rational?)
• The dollar: “Will continue to do well.” Nope, it lost ground.

Not a great batting average you say?  Truth is, I’m cherry-picking here.  Overall, Rosen’s message in November 08 was that things were improving, but that there would be volatiility and a long, slow recovery in housing.  Notwithstanding our brush with death in March  — Rosen put the chance of a deep recession at 5% — his prediction on that aspect of the market seems to be holding up well.  As for the dollar, given the gaping chasm that faced the global markets in the early months of 2009 – led by crashing and burning US financial institutions – the dollar’s decline shouldn’t be a surprise.

And as for the stock market and its amazing recovery, given what still seems to be looming on the horizon, I just can’t figure that one out at all.

Rosen’s Predictions for 2010

In terms of the shape of the recovery, Rosen estimates the chances of a “broken W”  — read fragile recovery – at 65%.  This is where I’m putting my money folks.

He estimates the chances of a more robust recovery at 25%, and that of a long , Japanese-style recession at 10%.

Expect a slow, fragile recovery, a bottoming out of the housing market, and rising long-term rates.

Estimates for the Stock Market, Year End 2010

S&P  1150; Dow 11,000

Advice for the Home-Buyer:

If there’s any good news here, it’s that Rosen thinks that the sector will come back fastest is single family housing.

Here’s the takeaway quote:

“Take advantage of the windfall tax credit and low interest rates if you’ve got a good job”

Rosen thinks that prices have bottomed (I’m not so sure).  But it does appear that

REO’s (properties taken back by the banks) have declined as a percentage of all sales, and that should help to stabilize prices.

From a socio-economic perspective, housing affordability has increased significantly due to low interest rates and price declines, and that can only be viewed as good if you believe that widespread home-ownership is a public “good.” (I do.)

What could go wrong?

In a moment of brilliant serendipity, Rosen’s co-chair at the Fisher School, Bob Edelstein — no small brain himself –  happened to sit next to me at lunch.  In the next 30 minutes we covered everything from wine to Waziristan.  His outlook was not as sanguine as Rosen’s.  We didn’t get into details, but my impression was that Edelstein was more concerned than Rosen about a jobless recovery coupled with higher interest rates driven by enormous deficits.

Once again, the magic eight ball says:  “Ask again later.”

Ask again later

Photo: Jack French -- Used under Creative Commons Permission 2.0

Noe Valley’s been my home since 1991 so I’ll admit that I track it with more attention than other neighborhoods.  For quite a few years now it’s also had a reputation for maintaining home values even as the rest of the city stumbles.  The question is whether that’s still true.
Back when I bought my two-unit home at a probate sale with one other bidder in attendance, the “hood” was closer to its working class roots.  Lots of single-story cottages in the 1200 square foot range and lots of duplexes.  It had a thriving lesbian community and was popular with singles who couldn’t afford to rent in the Marina.  It was San Francisco’s stealth neighborhood, just out of yuppy radar range.
By the mid-90’s it was growing increasingly popular with young families who were drawn to its slightly sleepy streets, decent weather, cute parks.  The shops along 24th Street had everything you could possibly need, but without the attitude of Fillmore Street or the grunge of the Haight.  All this, and decent Muni service downtown to boot.
When the dot-commers discovered that it also had great access to 280 and points south, prices took off.  Two-unit buildings started converting to single family homes (that’s what we did).  Little cottages would suddenly grow an extra floor, or a built-out basement, or both. Suddenly, we started seeing 2,500 foot homes and even the occasional trip-K (3,000 sf).
Prices inflated along with the floor-plans.  The million dollar mark was crossed some time around 2000.  The dot-com bust barely caused a blip.  By 2005 we were seeing feeding frenzies over houses approaching $1,000 per foot.   Even after the market started cooling off in 2007, Noe Valley prices seemed to defy gravity.
There’s nothing more local than real estate.  Could it be that Noe Valley was situated in some sort of socio-economic sweet-spot?  Many thought so, including me.  And until recently it was true.  But no longer.  Take a look (click to enlarge):

The data reflects sales of single family homes for MLS subdistrict 5C only.  Though the subdistrict includes areas as far up as Diamond Heights Boulevard and as far out as Guerrero Street, it captures the neighborhood pretty precisely. Here’s the MLS district map.

For the data-geeks among you – and I say that with the deepest affection – I should point out that the volatility of the line for Noe Valley prices is related to the much smaller volume of monthly transactions relative to the All-Districts data, and this is particularly evident around January of each year, when transaction volume really falls off.  Also, the three-month moving average is not weighted to reflect the number of transactions in any given month – it’s a simple average, as is the moving average for All-Districts.
These caveats aside, the trend seems pretty clear.  Noe Valley home prices continued to climb for nearly a year after the city’s as a whole had reached their peak.  But, starting in March 2008, they’ve dropped like a stone.  As of March, they’re actually doing slightly worse, on a percentage basis, than the city as a whole.
I’m not exactly thrilled about the thought that my house is worth about 30% less than it was a year or so ago (and, being both an optimist and a home-owner, I don’t really believe that’s true ☺).  Nor would it surprise me if Noe Valley recovered more quickly than some other neighborhoods.  But, at least for now, its gravity-defying days seem to be over.

That prompted some discussion about whether the results would be different if you excluded home sales in some of San Francisco’s outlying areas, such as the Bayview and the Westlake districts. These and other neighborhoods are included in MLS (Multiple Listing Service) Districts 3 and 10. Here’s the official MLS district map.

The thinking, mine included, was that San Francisco’s generally more expensive “core” areas would have held up better than the more modestly priced outer areas, where the economic downturn could be expected to have had a greater and more immediate impact.  Did they? I recently posted this chart at The Front Steps as a partial answer.

What’s really interesting about this chart is how closely the “Core Areas” and “All Districts” price lines track each other. This isn’t altogether surprising since the “Core Areas” data overlaps with over 75% of the “All Districts” data.   The fact that “Core Area” prices are higher also isn’t surprising.

But have “Core Areas” been holding up better than the city as a whole?  Based on this chart, I thought the answer was “yes”, since it shows an increasing price divergence in favor of “Core Areas” starting around July 2007.

Still, the divergence was relatively subtle, so I decided to take another stab at answering the question. This time, I focused directly on Districts 3 and 10 and compared the results to the city as a whole. I also looked specifically at how far prices had fallen from their respective all-time highs. Here’s the resulting chart — note, this is single family homes only, not condos (click to enlarge) .

In both cases, all-time highs were reached in June 2007. What this chart clearly confirms is that prices in Districts 3 and 10 really did fall further and faster than prices for the city as a whole. Initially, that is. Starting around July 2008, prices dropped off a cliff city-wide. As of February 2009, Districts 3 and 10 are actually doing slightly better than the city as a whole.

I will spare you the details of my travails with Excel, pivot tables, and generating median values for large data sets. Not fun – and the principal reason why I haven’t posted for a few weeks. However, I do think that this chart allows us to conclude that “Core Areas” haven’t performed substantially better or differently than the city as a whole. Much ado about nothing you say? Perhaps, but at least we’ve now established a baseline — sort of like the S&P 500 — against which to compare specific neighborhoods and areas.  Stay tuned.

I tracked average and median prices going back to 2000 for the ten combined MLS districts that comprise the San Francisco Multiple Listing Service — the big database that realtors use to list properties and record sales information .  (The MLS District Map is here, on my Market Trends page.)  Here are the results (click to make the chart bigger):

Pretty scary stuff, especially when you look at the suislide (a new word is born?) that started in June of last year and shows no signs of slowing down.

Before you head for the windows, or call your realtor (me!) to start looking for a house to buy, consider this:  as I’ve said before, there’s nothing so local as real estate.  It really does matter what neighborhood you’re talking about. This chart, while it does illustrate something meaningful about the overall SF market, doesn’t tell you anything about values in any particular neighborhood.  It lumps together data from neighborhoods as diverse as Hunter’s Point and Visitacion Valley in District 10, which has been slammed  for well over a year now, with neighborhoods like Noe Valley  in District 5 and St. Francis Wood  in District 4, both of which seem to be holding up pretty well.  Go to my Market Trends page to see the charts for individual districts.  I’ll be creating charts for individual neighborhoods within districts for future blogs.

And if it’s any consolation, SF real estate is holding up a heck of a lot better than the stock market, don’t-cha-know.  Today the S&P 500 closed at 682.55.  The last time it closed under 683 was on May 17, 1996.

Median and Average prices are down substantially year over year for single family homes in all districts except District 7 (“North”, which includes top-shelf enclaves like Pacific Heights and the Marina), but with only 2 sales for the month in that area, it’s not a meaningful statistic.  Indeed, as I’ve pointed out in previous blogs, sales drop off so dramatically every year during December/January that I’d be cautious reading too much into the  statistics for those particular months.

However, the three month moving average  for SF as a whole, which smooths out the seasonal fluctation, has clearly been heading south since last summer, as these two charts show (also available, much more prettily, under that Market Trends Tab):

Details on individual MLS districts to follow in another post.

In essence, DOM tracks the average number of days that properties have been on the market from the time they became active on the MLS (Multiple Listing Service used by realtors) to the time they actually sell.

Great minds must think alike because it turns out that my friends over at Inside SF Real Estate have been exploring the same thing.  Head over to their recent post for a look at DOM trends over 14 years.  What they haven’t done, however, is track DOM against median prices.  Ha!  I have, and here are the results for the last three years tracked by month (my numbers are pulled directly from the MLS database  — click to make the chart larger).

Now that’s what I call correlation! Note that the right-hand Y axis tracks DOM inversely, with longer periods at the bottom and shorter periods at the top.  So, this chart is basically showing that during periods, even relatively short periods, when the average DOM falls, prices rise, and when properties stay “on the market” for longer, prices fall.  This is just what you’d expect.

Why?  My guess is that DOM captures many of the factors in play in the real estate market at any given time.  For example, if credit is tight and appraisals are rigorous, you’d expect that transactions would take longer to get approved.  Likewise, if lots of people are bidding on the same house, you’d expect that the winning bidder would promise a quick “no contingency” close and that there would be no haggling on the sale price.  When the market slows, you’d expect more cautious buyers, more haggling on price, longer closing periods — all reflected ultimately in the DOM.

As my friends over at InsideSFRealestate pointed out in their post on DOM, realtors can play games with DOM.  For example, if a property doesn’t sell, they’ll take it off the market, and then put it back on as a “new listing” at a lower price and voila, the DOM resets to zero.  Still, that would just tend to increase the “down” side of the line — the correlation would still hold.

The only other point I’d add is to note the seasonal trend in the chart.  It seems that every December/January, DOM increases and prices dip.  Perhaps that’s the best time to buy.